• WisBusiness

Monday, April 29, 2013

Tom Still: Rebuilding the middle class: Ex-Wisconsin congressman offers a plan

By Tom Still
A report released this month by the Brookings Institution confirmed what many observers already suspected: Metro Milwaukee lost almost twice as many private-sector jobs in the decade of 2000-'10 as the average for the nation's 100 largest metro areas.

Not only was metro Milwaukee's 6.8 percent job loss well above the national average of 3.9 percent, but many of the vanished jobs were good jobs – with decent wages, benefits and some sense of security and opportunity.

In short, they were middle-class jobs that appear increasingly difficult to replace in today's jobless recovery.

Rebuilding the endangered middle class in America is the subject of "The New Middle Class: Creating Wealth, Wages, and Opportunity in the 21st Century," written by former Wisconsin congressman Steve Gunderson, who is now president and CEO of the Association of Private Sector Colleges and Universities.

The book provides an unvarnished look at why the American middle class has eroded over time, beginning with events, trends and policies dating to the 1970s, and offers some paths forward – assuming there is sufficient private and public will to follow them.

Gunderson, who also served in the Wisconsin Legislature before representing the state's 3rd Congressional District as a moderate Republican for 16 years, grew up in what he described as a classic middle-class environment. His grandfather was a farmer, his father a car dealer, and virtually everyone around them in the northwest Wisconsin community of Pleasantville fit that profile.

Today, Gunderson believes, the middle-class ethos that contributed so much to the nation's civic and economic fabric is threatened – not just in Wisconsin, but across the nation, at a time when competition from abroad has increased and the middle class is growing in emerging nations.

"Everyone thinks the end of the middle class began at the end of the recession," Gunderson said in a recent interviewk. "It didn't. It began in the 1970s. The good news is there is still time to save it."

The book outlines a host of reasons why the number of statistical middle-class households and their income growth has stagnated. Those include the instability of private and public retirement plans, the crumbling of the housing market following the growth bubble, policies and practices that encouraged a culture of personal spending versus saving, global competition, a lack of innovation in some industries and more.

Of late, Gunderson argues, one of the biggest factors contributing to the decline of the middle class is political gridlock.

"Both parties talk a great deal about restoring the middle class, but neither of them does anything about it," he wrote. "The truth is – they can't. The middle class cannot be restored in this era of severe political polarization. Unless politicians from both parties are willing to make compromises and restore the middle ground of American politics, the middle class will continue to erode. Throughout our history, consensus has built the middle class. Now, partisanship has destroyed it."

The consensus Gunderson proposes isn't somehow magical or unimagined by others, but it is a combination of ideas that may help to address challenges facing parts of Wisconsin that are struggling to reinvent their economies.

It begins with understanding the world has changed and the economy that existed a generation or even a decade ago has changed with it. The "knowledge economy" of the 21st century requires skills that weren't necessarily needed for middle-class jobs in the past. That has heightened the need for higher education that doesn't stop at the edge of a traditional college campus.

"America has spent decades reforming K-12 education," Gunderson wrote. "This is really important, but the next item on our agenda must be post-secondary education. Sixty-three percent of all jobs – and 85 percent of all new jobs – in America require some level of post-secondary education."

To Gunderson, that's not just more people with bachelor's, masters and doctoral degrees, but lifelong learners with certificates that address the needs of employers in emerging sectors that are most likely to create middle-class jobs.

Rebuilding the American manufacturing advantage, stabilizing retirement plans, easing the home-ownership crisis and solving the federal deficit riddle are also part of the equation. At the center of it all is what Gunderson describes as a "middle class compact" that focuses on fostering a growth economy, something he believes Democrats and Republicans alike can embrace.

Rebuilding the middle class, in Wisconsin and elsewhere, is essential to economic security, civic cohesion, democracy and even national security. It's a task that cannot begin soon enough, and which cannot be accomplished without public and private cooperation.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


Friday, April 26, 2013

Mike Kuglitsch, Fred Clark: Investment capital means job growth for Wisconsin

By Mike Kuglitsch
and Fred Clark
It's no secret that Republicans and Democrats in the Wisconsin Legislature have disagreed on more than a few issues in recent years. There comes a time, however, to put partisanship aside and to stand on common ground.

That time is now and the unifying issue is investing in Wisconsin's high-growth economy to create family sustaining jobs.

Together, we have sponsored legislation, which will create a $25-million, state-leveraged fund to invest in the companies and jobs of tomorrow. In the State Senate, the lead sponsors of this approach -- Sens. Alberta Darling, R-River Hills and Tim Cullen, D-Janesville -- have and will continue to provide the leadership on this critical jobs issue.

If passed by the full Legislature and signed into law by Gov. Walker, the fund created by this bill must attract twice the state's investment in private dollars. Those dollars will be invested over time in some of Wisconsin's most promising young companies.

Republicans and Democrats alike believe company and job creation is essential to Wisconsin's long-term success. Lawmakers in both parties also agree we need more family sustaining jobs. We also know that young companies -- those five years old or younger -- are statistically the source of virtually all net new jobs in Wisconsin and the United States.

We want to stop the exodus of ideas, innovation and intellectual property from Wisconsin, which is a national leader in creating new technologies but which lags in turning those ideas into companies that plant roots in our native soil. In fact, independent surveys have shown Wisconsin near the 50-state bottom in annual company creation.

If Wisconsin doesn't invest now in building new companies and jobs, we will lose valuable workers -- mostly, young workers -- to other states. With them will exit a piece of our future, as well as our hopes to keep our best and brightest sons and daughters close to home.

Modeled after similar funds in other states, the Wisconsin fund will spur company creation and job growth while building safeguards to protect taxpayers.

This legislation will help make sure good ideas stay in Wisconsin while protecting taxpayers through tried-and-true methods of accountability and transparency. The state would be treated just like all private partners in the "fund-of-funds," sharing the risks and the rewards.

It will take some time for the fund to show a return on investment in the traditional sense, simply because young companies can take several years to mature. However, another important return on investment -- jobs and economic activity -- will materialize shortly after investments are made in young companies.

Dollars invested by angels and venture capitalists are used to hire and retain competitive talent, buy equipment, build sales, rent space, complete research and generally conduct business. In short, dollars invested at home tend to stay in the local economy.

We want this process to begin as quickly as possible and to produce results as soon as possible. That's why the fund will be targeted at these broad sectors: agriculture, advanced manufacturing, engineered products, information technology, and medical devices and imaging.

These sectors align with many of Wisconsin's existing strengths and provide a shorter "runway" for company takeoff. The shorter the runway, the sooner companies, jobs and investment returns can be realized.

Wisconsin is competing for its fair share of the $50 billion invested each year nationally in angel and venture capital deals. Thirty other states were successfully engaged in that competition. In the last few months alone, similar funds in Colorado, Georgia, Arizona and Indiana have been proposed or launched.

Republicans and Democrats may find other issues that they disagree on, but we need come together around those ideas that stop "brain drain," keep companies at home and create family sustaining jobs. Our proposal for a state-leveraged investment fund meets that test.

-- Kuglitsch, R-New Berlin, represents the 84th Assembly District, which includes parts of Waukesha and Milwaukee counties. Clark, D-Sauk City, represents the 81st Assembly District, which includes parts of Sauk, Iowa, Columbia and Dane counties.

Monday, April 22, 2013

Tom Still: Across UW System, undergraduate research is emerging tool for growth

By Tom Still
A young crowd outfitted with posters, placards and a zeal for reaching out to state legislators crowded into the Capitol Rotunda Wednesday and wouldn't budge for hours.

A fresh crop of political protesters? On the contrary, it was more than 100 of the best and brightest researchers from University of Wisconsin System campuses who, along with their faculty advisers, took part in the 10th annual "Posters in the Rotunda" event.

For lawmakers and others who toured the student exhibits, it was a hands-on demonstration of the power of undergraduate research in Wisconsin – and a reminder that good ideas aren't limited to the high-powered academic labs in Madison and Milwaukee.

Wisconsin is perennially among the top 15 states when it comes to academic research and development grants and spending, in large part because the UW-Madison is a national leader at roughly $1 billion in annual R&D. A handful of Milwaukee institutions, such as the Medical College of Wisconsin and the UW-Milwaukee, account for another $250 million.

Less apparent is the growth in academic R&D activity outside the state's largest campuses, including the 11 non-doctoral, four-year campuses outside Madison and Milwaukee.

Significant research activity is taking place across the rest of the UW System, often led by faculty researchers – some of whom are also launching companies – but also among students who may become the Ph.D. candidates and entrepreneurs of tomorrow.

"Posters in the Rotunda" attracted attention from state lawmakers and others who were impressed by what they saw, and intrigued by what it might mean for economic development statewide.

The reason most academic R&D takes place on doctoral campuses is that graduate students are the muscle behind major projects. While tenured faculty are at the top of the food chain, graduate students provide the necessary hands, eyes and brains to get much of the work done. Academic R&D is a team sport, especially when different scientific and technical disciplines are involved.

The challenge of carrying out R&D on non-doctoral campuses is twofold: Most faculty researchers have significant teaching duties, and there's no ready pool of student researchers beyond the master's degree level. That's where growth in undergraduate research comes into play.

Students who participate in advanced research are much more likely to stay in school, graduate in a timely manner, find employment after graduation and attend graduate schools. They are also more likely to take an interest in becoming entrepreneurs, which is crucial in a state that continues to lag most of the nation in company creation.

Undergraduate research is not just a Wisconsin trend, as evidenced by this month's National Conference on Undergraduate Research on the UW-La Crosse campus. Some 3,000 students and faculty advisers from 48 states and seven countries took part in the three-day conference.

For Wisconsin, a growing supply of undergraduate researchers across Wisconsin means a better-trained workforce and more opportunity for investment and company startups.

The WiSys Technology Foundation, a subsidiary of the Wisconsin Alumni Research Foundation, works with researchers outside the Madison and Milwaukee campuses to connect R&D with commercial applications. About 20 companies statewide are working with WiSys.

The rise in angel investing across Wisconsin also aligns with that trend. In 2004, there were only a handful of angel groups in Wisconsin and all but one was located in Madison or Milwaukee. Today, there are more than two dozen angel groups in Wisconsin and 12 are based outside the Madison and Milwaukee metro areas, usually within a short drive of a four-year campus.

If the Legislature enacts an early stage investment fund, matched by private dollars, the "farm system" being created around R&D projects from UW System and private college campuses will prove instrumental to economic growth.

Building a workforce and companies equipped to compete in the "knowledge economy" of the 21st century often starts with targeted educational opportunities. For many students in Wisconsin, that begins with the chance to conduct hands-on research as undergrads.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


Friday, April 19, 2013

Richard G. Chandler: Targeting fraud protects taxpayers

By Richard G. Chandler
As revenue secretary, I am aware of the growing sophistication of tax fraud schemes. According to the Internal Revenue Service (IRS), attempts by identity thieves to steal personal information to claim tax refunds grew 78 percent from 2011 to 2012. Likewise, the IRS estimates that 23 percent to 28 percent of all tax refunds for the Earned Income Tax Credit are issued improperly.

If tax refunds are issued to fraudsters, honest taxpayers foot the bill. It's why the Department of Revenue will continue to target tax fraud of all types.

I share Governor Scott Walker's goals of stopping tax fraud and protecting Wisconsin taxpayers. As a continuation of the governor's efforts to combat waste, fraud, and abuse, his budgetstrengthens our department's efforts to detect fraud, in an effort to save taxpayers millions of dollars.

Specifically, Wisconsin will lead the way by leveraging technology used by the private sector to detect stolen identities and map fraud rings. New technology tools combined with additional staff will help DOR block refunds filed by fraudsters. They will no longer be able to take the money and run.

Altogether, Governor Walker's budget seeks to add 61 staff to specifically target fraud, build upon proven collection strategies that target out-of-state debtors, and reduce backlogs using automation. The additional resources will net an estimated $76 million that can be used for tax relief and other funding priorities.

While we are proposing to add targeted resources to combat fraud, we know that overall government must do more with less to help taxpayers. Our agency has successfully reduced staffing levels by nearly 20 percent over a twelve-year period, and we are continuing to reduce overall staffing in this budget by an additional 3 percent.

We will continue to reform government by targeting resources effectively and efficiently. Governor's Walker's budget proposal cracks down on tax cheats by providing the Department of Revenue with the tools necessary to protect Wisconsin's hardworking taxpayers.

We know that combating fraud will provide an excellent return on investment and protect honest Wisconsin taxpayers.

-- Chandler is Wisconsin's revenue secretary. The Wisconsin Department of Revenue helps formulate state tax policy, administers the state's major tax laws, collects individual and business taxes, and provides state financial aid to local governments.


Monday, April 15, 2013

Tom Still: Business Plan Contest finalists symbolize growth targets for state investment plan

By Tom Still
Now in its 10th year, the Wisconsin Governor's Business Plan Contest has always been a canary in a high-tech coal mine. It provides an annual overview of the kinds of businesses emerging in the state's tech sectors – as well as areas of relative decline.

The list of 21 finalists for the 2013 competition, which will grow to two-dozen when top collegiate contests feed into the mix, is no exception to the rule. For state policymakers who are weighing how to best target a $25-million early stage fund envisioned by Gov. Scott Walker, the list is a harbinger of emerging opportunities.

The contest began in late January with a record number of entrants from 106 communities across Wisconsin, further evidence that entrepreneurs with good ideas can hail from anywhere. The list was narrowed by independent judges in late February to about 50 semi-finalists and again last week to 21 finalists, with one more cut to come before the "Diligent Dozen" present June 4 at the Wisconsin Entrepreneurs' Conference.

The survivors are a microcosm of Wisconsin innovation, with finalists pushing the envelope in traditional sectors such as agriculture and manufacturing, as well as information technology, engineered products and medical devices and imaging.

* Software and business service plans among the finalists include systems and applications for agricultural field surveillance, real estate searches, automated research, martial arts management, medical education, wedding planning, gaming – and even a system for awarding good behavior in children.

* Manufacturing ideas cover innovations in electric motors, energy-efficient windows, data center cooling, wastewater treatment, "green" trolley production and several aspects of trucking.

* Health-related plans include a rapid cardiac analysis system, an emergency cooling vest for hypothermia cases, a nitric oxide system for treating diabetic foot ulcers, a device to noninvasive measure hydration and tools to assist diabetes drug discovery.

Over 10 years, the contest has attracted 2,613 entries spread among four major categories – advanced manufacturing (818), business services (759), information technology (681) and life sciences (355). The life sciences category, while highly competitive, has attracted fewer drug development startups in recent years because of high regulatory and fundraising hurdles in that sector. It simply takes longer to incubate such companies, nationally as well as in Wisconsin.

The statewide contest is emblematic of market data that may guide members of the Wisconsin Legislature as they consider how to make best use of a $25-million "placeholder" in Walker's budget bill for early stage investments.

Lawmakers will likely seek to construct a plan, either through a separate bill or as part of the budget, to establish a privately managed "fund of funds" that would require a 2-to-1 match from private investors. Because the initial amount of the fund is modest by national standards, lawmakers could choose – at least, initially – to focus on sectors where return on investment and job creation prospects are highest.

That's not unlike what happens with similar funds in Wisconsin and nationally. When the Wisconsin Alumni Research Foundation and the State of Wisconsin Investment Board announced creation of an early stage fund last month, its leaders said the investment focus will be data management, informatics, data storage, social grid computing, hardware, new materials, software, mobile technology security and health care information technology.

The Governor's Business Plan Contest is only one indicator of market trends. However, other metrics such as investments by existing private funds in Wisconsin, sector-based accelerators and the Qualified New Business Venture program within the Wisconsin Economic Development Corp. also help highlight Wisconsin's innovation trends and strengths.

Building on those strengths should be among the goals of a state-leveraged early stage fund.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


Kara Slaughter: Sometimes we don't know a good thing until it's gone

By Kara Slaughter
Despite a slick ad campaign to the contrary, most of us in Wisconsin are pretty sure that our dairy cows are happier than their California cousins. Based on recent figures, it seems that the same is likely true for the dairy farm owners. California lost 105 dairy farms in 2012. That's a lot of farms any way you slice it, but in a state like California with less than 1,600 dairy herds (compared to around 12,000 in Wisconsin) losing over 100 herds in a year is a painful blow.

Why were California dairies hit so hard in 2012? In short, the risks inherent in the California model of dairying came home to roost. In contrast to Wisconsin dairy farms, which own land as well as cows and produce a high percentage of their own feed, California dairies rely on purchasing grain and forages from out of state. With corn prices at record highs and alfalfa stores at record lows due to the drought, California dairies felt the pinch when it came to feeding its cows last year.

According to the 2007 USDA Census of Agriculture, 30 percent of farmland in Wisconsin is rented. In California, by contrast, the percentage of rented acres is closer to 50 percent. It is important to note that this figure represents all types of crops and operations, not just dairy farms. But to the extent that the figures are emblematic of the differences between the Wisconsin and California models of agriculture, these numbers suggest that land ownership is a risk mitigation strategy that has served Wisconsin farmers well in an era of great economic volatility.

Sometimes we don't know a good thing until it's gone. We've got a good thing going here in Wisconsin – animal agriculture is still largely tied to the land base that supports it. The received wisdom is that the hottest trends in finance and fashion start on the coasts and work their way inward. Our coastal compatriots may chide us for being behind the times, but we also have the chance to see which ideas work and which don't. The current state of affairs in California suggests strongly that the concept of separating the acres from the cows is a bandwagon we do not want to hop on.

Why should we be contemplating these questions right now in Wisconsin? For one, the trend of renting rather than owning acres is growing: the percent of rented acres was 26 percent in 1987 and 27 percent in 1997. If one of our methods for supporting the dairy industry is minimizing risk, that is not a positive trend. Taking some of the steam out of the current run- up in land values would go a long way toward making land ownership viable for all farms in Wisconsin, and particularly beginning farms.

In this context, we should question the current proposal by the governor to make it easier for foreign corporations and individuals to buy large tracts of land in Wisconsin. Such a change would likely have an inflationary effect on land values, driving land ownership even further out of reach. The strength of Wisconsin's dairy farms lies in their diversification and resilience – a brilliant system where manure feeds the plants, the plants feed the cows, and the cows feed the farmer. All of this works best when the cows and the land are part of the same farm. A farm that is producing both grain and milk is in a much better position to weather price and weather shocks than one that is not.

Our friend Nick Levendofsky from Kansas Farmers Union recently shared a photo of a circa-1970 Moor Man's feed decorative plate. It features a picture of a barn and silo surrounded by rolling fields of grain and pasture, and flanked on three sides by beef and dairy cows, pigs, chickens, and sheep. The inscription at the top reads: "Buy only what you cannot raise or process on your farm or ranch." The cows on that plate, feeding on the bounty from the surrounding hillsides, look pretty happy to me.

-- Slaughter is government relations director for the Wisconsin Farmers Union.


Monday, April 8, 2013

Tom Still: Need for better broadband coverage is emerging ‘infrastructure’ gap

By Tom Still
A century or so ago, the development of a reliable farm-to-market road system helped grow Wisconsin's agricultural economy by making it possible to move perishable goods much faster. That was followed in the 1930s by "rural electrification," or the widespread availability of electric power to parts of Wisconsin that were living, quite literally, in the dark.

Both are examples of how advances in infrastructure – a fancy word for basic facilities, services and installations – helped transform rural Wisconsin in the past.

The next frontier is most likely expanded access to broadband service, a 21st century equivalent to roads and electricity in terms of fostering Wisconsin's connections in a wired world.

That was the message last week at a meeting sponsored by LinkWISCONSIN and the state Public Service Commission of Wisconsin, which have spent more than two years taking stock of Wisconsin's broadband capabilities and laying out strategies for how to move ahead.

First, a definition: Broadband is generally described as enough bandwidth, or high-speed Internet connectivity, to carry multiple voice, video or data channels simultaneously. That can be accomplished through fiber optic lines or through wireless networks.

Wisconsin ranks below average among the 50 states when it comes to high-speed Internet access, according to recent reports. A major reason for the state's lackluster ranking is access in rural Wisconsin, where many telecom providers are trying to swap their historic commitment to land-line service to investments in broadband.

Much like other communities across the United States, rural Wisconsin would benefit from enhanced broadband connections. Here are some reasons why:

* Broadband allows small businesses, which account for most new jobs in Wisconsin, to expand their markets and customer bases to regional, national and even international levels through greater use of eCommerce sales channels.

* It fosters opportunities for creation of businesses related to information technology, one of the fastest-growing segments of the U.S. economy. Wisconsin is 21st among the states in information technology jobs, according to the latest CyberStates survey, and could grow even more in development of software, mobile applications and Internet solutions.

* It enables hospitals and clinics to make better use of telemedicine. Examples include rapidly locating digital medical records and medical images that can be more easily transmitted to doctors or clinics in remote locations. This can save lives and improve health.

* It provides rural Wisconsin residents with greater access to higher education or continued education through "distance learning" systems. These systems themselves can become an export industry for Wisconsin, which has a strong "K-through-gray" education structure and companies engaged in educational software. Why not sell that expertise to others?

* It will enhance tourism. Wisconsin is a prime tourism destination, but some in the industry find themselves losing opportunities to book sales if their broadband service is slow or erratic. Tourists used to send postcards; today, they Tweet, post on Facebook or send an Instagram – and they want to stay connected, even if they're on vacation.

* It will enhance public safety by allowing more rapid response to emergencies, whether those are medical emergencies, police calls or events related to natural disasters.

All of those benefits and more were discussed during the conference, which represented more than two years of background work on broadband mapping, data analysis and input from consumers and providers alike.

Some next steps may be included in Gov. Scott Walker's state budget bill, which will help remove some regulatory speed bumps and provide some money for public-private partnerships. Speaking Thursday at the conference, Walker called broadband access and capacity "a major economic development issue… Gaps in service are also gaps in opportunity."

Reed Hall, the secretary and CEO of the Wisconsin Economic Development Corp. and the former executive director of the Marshfield Clinic, walked conference participants through the history of rural electrification and drew parallels to current efforts to expand broadband.

"People want to live and work where there is broadband service," Hall said. "It improves the manner in which health care and many public services are delivered. For communities, it is a critical piece of infrastructure for attracting new capital investment as well as retaining existing businesses. Broadband service… has flattened the world by allowing businesses to communicate and collaborate in ways never before possible."

Ultimately, of course, better broadband service will be driven by market forces. Will enough people pay for the service? In the meantime, however, public-private partnerships will help ensure that rural Wisconsin isn't left behind.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


Friday, April 5, 2013

Peter Bildsten: Health of state banks, credit unions is good news for Wisconsin economy

By Peter Bildsten
One of the many bright spots of the Wisconsin economy is the financial health of the 199 state-chartered banks and 187 credit unions regulated by the Department of Financial Institutions (DFI), of which I serve as Secretary. Over the past two years, the performance of banks and credit unions has continued to improve. For example:

* Earnings have rebounded strongly. In 2012, Wisconsin banks improved earnings by 53 percent over 2011, while state credit unions grew net income by 81 percent over the previous year.

* Capital – a key measure of health for financial institutions – is back to or better than pre-recession levels. As of Dec. 31, 2012, bank capital levels stood at 11.12 percent, the highest in 10 years, while the net worth of state credit unions was 10.25 percent, the best in five years.

Why is this good news for Wisconsin? Banks and credit unions are a key component of the state's private-sector economic engine. These institutions make loans to help businesses expand and create more jobs. They help drive the real estate market by originating mortgages, allowing people to achieve the dream of owning their own home. They provide products and services that give consumers access to credit and allow them to better manage their money.

Like many industries, financial services institutions have faced significant challenges over the past five years. Borrowers have become more wary. For good reasons, compliance and regulatory responsibilities have increased. But Wisconsin banks and credit unions have weathered the economic storm well and most find themselves in the best position they've been in for many years. In fact, many institutions are reporting record earnings.

Make no mistake about it: Banks and credit unions are eager to lend, since the interest they earn on loans is their largest source of income. Admittedly, loan standards have changed somewhat since the recession, but that is not necessarily bad. In order to survive, banks and credit unions have to make loans, but in order to thrive, they must make good loans.

Like most of our state's financial institutions, Governor Scott Walker, his Cabinet and the Legislature made a lot of prudent decisions over the past two years to put Wisconsin on solid financial footing. As our economy continues to pick up, Wisconsin banks and credit unions are well-positioned to help fuel the state's economic growth.

-- Bildsten spent more than three decades in the private-sector banking and credit union industries before being named secretary of the Department of Financial Institutions in January 2011.


Monday, April 1, 2013

Tom Still: Like ice cream and jelly beans, small businesses come in different flavors

By Tom Still
The role of small businesses in job creation in the United States is getting overdue attention from federal and state policymakers, thanks, in no small part, to studies that show virtually all net new jobs nationally are born of small, young companies.

While encouraging, such figures also come with important qualifiers that politicos should bear in mind as they debate innovative ways to stoke the fires of job creation.

Let's start with the concept of "net" new jobs. In a dynamic economy that is constantly reinventing itself, today's jobs may be part of tomorrow's unemployment line. It has always been that way in a market economy, with new ideas and companies pushing up from below and crowding out older products, services and firms. It's what economists have long described as "creative destruction" or "economic churn."

Of course, many older companies create jobs. Most long-established companies in Wisconsin do so every day. But older companies also tend to shed jobs as they become more efficient, lose ground to competitors or suffer loses during an economic downturn. On balance, job creation among larger U.S. companies has been something of a wash for three decades or more.

Young, small companies create jobs by definition – even if most of them are one-person shops. While the survival rate for young companies isn't universally high, there are enough new companies created every year to keep the process of "creative destruction" humming along.

All small businesses are not created alike, however. There are four basic categories – three of which are not major job creators, nor ever intend to be, and one that more than pulls its weight when it comes to churning out jobs.

"Mom and pop" businesses are classic small businesses – bakeries, beauty salons, restaurants, retail shops and more – that add tremendous value and stability to the economy. But their owners generally don't hang an "Open for Business" sign on Main Street believing they will employ dozens or even hundreds of workers someday. For them, employee growth is a choice, not an imperative.

"Lifestyle" businesses are often launched by people who have taken an avocation, hobby or talent to the next level. Like owners of mom-and-pop operations, the owners of lifestyle businesses aren't typically driven by company growth. They want to be profitable and earn a good living, but they rarely see a bigger workforce as helping them meet those goals.

"Social" businesses are usually the product of an owner's belief system and often start with some sort of greater-good cause in mind, whether it's the environment, health and wellness, working with children, or providing some sort of human service. While staying in business is a goal because that also helps the cause, creating jobs is usually down the list.

"High-growth" entrepreneurs are the type most likely to create jobs because they want to grow – and they believe their products or services are market-disrupters. These are entrepreneurs who say they expect to create 20 or more jobs in five years, who pursue angel and venture capital, and who dream of scaling their young company into tomorrow's Facebook, Google or Home Depot.

The distinction should matter to policymakers. While governments may want to pursue small business policies, that's not necessarily the same as policies focused on high-growth entrepreneurship. Small business policies might concentrate on ensuring access to credit, providing technical assistance and removing outmoded regulations. Entrepreneurship policies could include strategies to encourage availability of early stage capital in high-growth sectors, protect intellectual property, ease technology commercialization from universities and stay in front of new regulations – particularly those that might offer opportunities.

Innovation can be found in all types of companies, large and small, but if national and state policy goals are centered on job creation, it makes sense to tailor some of those policies to high-growth startups that have both the will and the way to grow.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


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